News that Eric Daniels, the former boss of Lloyds Bank, has accepted a directorship at Funding Circle draws many possible extrapolations.
Could it mean that Funding Circle’s master plan has, all along, been to become a fully-fledged bank and that the arrival of Mr Daniels is a stepping stone in that direction? Could it mean that Mr Daniels wanted a job, but couldn’t find one befitting his status in mainstream banking?
The more likely explanation is that, in Mr Daniels, Funding Circle has retained the services of one of the banking sector’s genuinely big hitters with enormous influence in very powerful circles. As was pointed out in a recent article in The Times written by distinguished journalist Edward Lucas, “Though the banks are not very good at finance, they are excellent lobbyists.”
Bearing in mind all the criticism that has been levelled at alternative finance in general – much of it focused on the fact that the P2P platforms have never faced a downturn and that most of the people behind them are ‘techies’ rather than financiers – this looks to be a sensible move. If you take the entirely reasonable view that Eric Daniels would not lend his name to something that was not absolutely kosher, it begins to explain the true value of his advocacy.
Perhaps more importantly, it underlines the fact that traditional banks and P2P crowdlenders need not be enemies. The banks have ceded ground to alternative finance providers in lending to consumers and SMEs – both areas where volume is high, margins are low and the political downside can be considerable. The low cost-base providers of Altfi are in their element in these markets.
On the other side of the equation, the High Street banks may not be quite so happy to lose their cheap depositors, to whom they pay virtually no interest, to well-run platforms that can offer returns to investors of up to 7% gross. This disappearing money will not be so easy to replace. Answer: don’t fight it, control it. The ‘we-should-work-together’ flag of truce is a beguiling device.
The alternative finance industry has made remarkable progress in a short space of time, but conditions will not always be so favourable. Enlisting people of the calibre of Mr Daniels can only improve trust levels and may even help smooth the road to acceptance when dealing with bodies like the FCA.